Total Return Explanation
This total return chart shows the weighted average return on investment for all income-producing properties managed by Falcon Real Estate through June 2009. Returns are calculated using a formula provided by NCREIF which includes both net cash flow from each property, plus or minus any recognized increase or decrease in the estimated value of the property. These returns are compared to the NCREIF Property Index, which is virtually the only index available to track the performance of investment grade real estate in the United States.
This index has been prepared quarterly by the National Council of Real Estate Investment Fiduciaries in the United States since the fourth quarter of 1977. Virtually all of the major institutional real estate investors in the United States participate in this index by providing NCREIF with quarterly statistics on their real estate holdings. Statistics are given with respect to the income produced by a property as well as with respect to the increase or decrease in the value of each property.
As of June 30, 2009 the NCREIF Property Index was comprised of 6,123 properties with a market valuation of $254.1 billion. It is important to note that the NCREIF Property Index consists of both equity and leveraged properties; however the leveraged properties are reported on an unleveraged basis. Therefore, the index is completely unleveraged. The investment performance of the Falcon portfolio is calculated on a leveraged basis using formulas applicable to calculating the NCREIF Property Index.
Falcon follows a conservative approach to the valuation of its portfolio, increasing the carrying value of a property only when some specific event has occurred, such as a new lease, an increase in rent, a re-financing or a new third-party appraisal. On the other hand, properties are written down when a decline in income or any other potentially negative factor occurs or is anticipated. Therefore due to extraordinary market conditions in the fourth quarter of 2008, Falcon reduced the value of its portfolio to reflect higher capitalization rates. We believe these conditions will continue during 2009.
The returns from the Falcon portfolio were as follows:
| Term | Falcon | NCREIF | |
| 1 year | – 24.4% | – 19.6% | 7/1/08 – 6/30/09 |
| 3 year | 11.8% | 1.0% | 7/1/06 – 6/30/09 |
| 5 year | 15.9% | 7.6% | 7/1/04 – 6/30/09 |
| Inception to Date* | 15.1% | 7.2% | 1/1/91 – 6/30/09 |
| * Inception Date — January 1, 1991 | |||